By Granite Springs Asset Management:
In the last week, we have heard increased talk by senior Eurozone leaders that bank recapitalization is on the front burner. The bailout of Dexia (DXBGF.PK) by the French and Belgian governments just highlighted the issue.
Although the ECB didn?t lower interest rates at its recent policy meeting, it is clear that the ECB will provide enhanced liquidity to the monetary bloc?s banks by extending the maturity of credits to 12 or 13 months. That makes it easier for banks to get through potentially difficult reporting periods. This is a positive in that the likelihood of an across-the-board European banking system collapse, which would have made Lehman?s demise look like a hiccup, is less likely to occur.
Greek Default Increasingly Likely
One implication of these statements is ironically that a Greek default now becomes increasingly likely. If Eurozone governments were sure they could avert a Greek default, there would be
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